Coverage is an individual contractual obligation incurred by the contract provider. Aggregation of all such obligations within the terms and conditions defined must be equal to contractual liability of a contract. Consider these two examples:
· A Life Insurance contract offering a normal death benefit, accidental death benefit and critical illness benefits to the insured.
· An Auto Insurance policy with auto liability, medical payment liability, personal injury protection and third party liability.
In the above example, a single row is created in life insurance contract entity and property and casualty insurance contract entity. And the policy coverage entity stores three rows for life insurance contract and four rows for auto insurance contracts. In many insurance contracts, certain coverages, known as riders, are optional, and some are bundled as a part of contract itself. All such coverages must be stored in stage policy coverages. Different coverages may have effective dates having different maturity period and may have varying different terms and conditions limiting to the main contract. Stage Policy Coverage entity allows the end user to handle this flexibility. In case of group insurance, policy coverages refers to the single aggregated benefit or rider bundled as a part of product across all group members.
Riders or optional benefits must be loaded as coverages in Oracle Insurance Data Foundation. Coverage option or a component, which is dependent on the existence and continuation on another component and its effect/attributes is limited to a specific parent, then it must be modeled as a Coverage. Therefore, this relationship defines an association between the Coverage Option and its parent, where if the parent lapses or is no longer in effect for any reason, the Coverage Option under it also lapses/terminates/ends.
For the list of tables and mapping details, see Coverage Tables.
Guaranteed Benefits
Guaranteed Benefits is a component of insurance policy or contract, which provides for either part of the full benefit amount is guaranteed by the Insurer.
Examples for illustration (These examples are not limited to this illustration):
· Scenario 1: On death during the policy term, the nominee receives a guaranteed lump sum payout with an option to convert it into monthly income for 10 years. On death of the Life Insured during the Policy Term, lump sum Death Benefit equal to Guaranteed Sum Assured on Death (GSAD) is payable to the nominee.
· Scenario 2: On retirement, the plan may pay out in monthly payments throughout the lifetime of the employee, or as a lump sum payment. If the employee dies, some plans distribute any remaining benefits to the beneficiaries of the employee.
Embedded Options
An Embedded Option is a special condition attached to an Insurance Contract, which gives the policy holder or the issuer the right to perform a specified action at some point in the future. An Embedded Option is an inseparable part of an Insurance Contract, and therefore, it cannot trade by itself. However, it can affect the value of the Insurance Contract of which it is a component.
To separate an Embedded Option from Insurance Contract, the following conditions must be met:
· The economic characteristics and risks of the Embedded Option are not closely related to the economic characteristics and risks of the host (the remaining Insurance Contract).
· A separate instrument with the same terms as the Embedded Option meets the definition of an Option.
· The contract, which is not measured at fair value with changes in fair value recognized in profit or loss.
Examples for illustration (These examples are not limited to this illustration):
· Example 1: A Death Benefit that is linked to equity prices payable only on death (and not on surrender or maturity), or the greater of the unit value of an investment and a guaranteed amount.
In this scenario, the existing benefit, which is Death Benefit option, is in the contract and is linked to the market. Therefore, Embedded Option is not separated and it falls under IFRS 17.
· Example 2: An option to take a Life-Contingent Annuity at a guaranteed rate.
In this scenario, the existing benefit is given out as an additional benefit option to the contract in the form of Embedded Option. This benefit is not separated from the Insurance Contracts.
· Example 3: A minimum annuity payment, if the annuity payments are linked to the investment returns. Additionally, the guarantee is related only to Life-Contingent Payments, or the policyholder can choose to receive a Life-Contingent Payment or a fixed amount of payments at predetermined terms.
In this scenario, the minimum annuity payment, which is made by the insured is periodically linked to the investment returns of the contract with an additional benefit option to the contract as an Embedded Option. Therefore, it is not separated from the Insurance Contracts.
Both Guaranteed Benefits and Embedded Options must be loaded to stage policy coverages covering specific attributes such as Guarantee Type, Option Dates etc. For the list of tables and mapping details, see Embedded Options Tables.